Value-Added Taxes: To Create a General VAT and Exempt VAT

By performing this implementation activity, you will learn how to configure a general VAT will be used in AR and AP documents, and an exempt VAT.

Story

The SweetLife Fruits & Jams company provides services to customers and buys services from vendors in Canada, which are subject to a 7% VAT. Acting as an implementation consultant, you need to configure the VAT, assign it to the TAXABLE category and the CANADA tax zone, and specify the tax calculation method for this tax.

You also need to define a 0% exempt VAT, because you have to report exempt VAT in your tax report. This tax needs to be defined because you want to include exempt sales and purchases in your tax report. (Tax reports do not include documents to which no taxes have been applied.) That is why you need to create a separate tax code and create two taxes with a rate of 0%: one of the Output type, assigned to the Exempt Sales group; and the other of the Input type, assigned to the Exempt Purchases group, which indicates that this sale or purchase should be reported as tax exempt. You can then apply this tax to the appropriate invoices and bills so that they are included in the tax report.

Configuration Overview

In the U100 dataset, the following configuration tasks have been performed to prepare the system for this activity to be performed:

  • On the Enable/Disable Features (CS100000) form, the VAT Reporting feature has been enabled.
  • On the Tax Categories (TX205500) form, the TAXABLE and EXEMPT tax categories have been created.
  • On the Tax Zones (TX206000) form, the CANADA tax zone has been created.

Process Overview

In this activity, on the Taxes (TX205000) form, you will create a VAT tax and specify its tax rate, tax category, and tax zone. On the same form, you will also create a 0% VAT to represent exempt sales and purchases in the tax report. On the Tax Zones (TX206000) form, you will then review the list of taxes assigned to the tax zone, and on the Tax Categories (TX205500) form, you will review the taxes assigned to each tax category and remove the sales taxes assigned to each category.

Important: Before configuring a value-added tax in the production environment, you should know exactly which calculation method should be applied in the Calculation Rule box of the Taxes (TX205000) form (the Tax Settings tab).

System Preparation

To prepare the system, do the following:

  1. Launch the MYOB Acumatica website, and sign in to a company with the U100 dataset preloaded. You should sign in as an implementation consultant by using the gibbs username and the 123 password.
  2. On the Company and Branch Selection menu, on the top pane of the MYOB Acumatica screen, select the SweetLife Head Office and Wholesale Center branch.
  3. As a prerequisite activity, in the company to which you are signed in, be sure you have configured the VATTAX tax agency as described in Tax Agency: To Set Up a Tax Agency for VAT.
  4. As a prerequisite activity, in the company to which you are signed in, be sure you have configured a tax report as described in Tax Report Configuration: To Create a Tax Report for VAT.

Step 1: Creating a General VAT

To create a value-added tax, do the following:

  1. Open the Taxes (TX205000) form and create a new record.
  2. On the Tax Settings tab, specify the following settings:
    • Tax ID: VAT
    • Description: VAT 7%
    • Tax Type: VAT
    • Include in VAT Taxable Total: Selected

      When this check box is selected, the taxable amount to which the tax applies is included in the VAT Taxable Total for the document on the applicable form.

    • Calculation Rule: Exclusive Line-Level

      This setting means that the tax amount is calculated on each line, and then the calculated tax amounts are totaled.

    • Cash Discount: Does Not Affect Taxable Amount

      This setting means that the taxable amount is not decreased by any cash discount.

    • Tax Agency: VATTAX
  3. On the Tax Schedule tab, click Add Row on the table toolbar, and specify the following settings:
    • Start Date: 1/1/1900 (inserted by default)
    • Tax Rate: 7
    • Reporting Group: Taxable Purchases
  4. Click Add Row again and specify the following settings for the second row:
    • Start Date: 1/1/1900 (inserted by default)
    • Tax Rate: 7
    • Reporting Group: Taxable Sales
  5. On the form toolbar, click Save.
  6. On the Categories tab, click Add Row on the table toolbar, and select TAXABLE in the Tax Category column.
  7. On the Zones tab, click Add Row on the table toolbar, and select CANADA in the Tax Zone ID column.

    The created tax will be applied to all taxable items sold to customers and purchased from vendors assigned to the CANADA tax zone.

  8. On the GL Accounts tab, review the GL accounts assigned to this tax.

    The Tax Payable account is the liability account that accumulates the tax amounts to be paid to the tax agency. The account is credited in the tax amount when taxable invoices are released. The Tax Claimable account is an asset account that accumulates the tax amounts to be claimed from the tax agency. The account is debited in the tax amount when taxable bills are released.

  9. On the form toolbar, click Save.

Step 2: Creating a 0% Exempt VAT

To create a 0% (exempt) VAT, do the following:

  1. While you are still on the Taxes (TX205000) form, create a new record, and specify the following settings on the Tax Settings tab:
    • Tax ID: VATEXEMPT
    • Description: VAT Exempt
    • Tax Type: VAT
    • Include in VAT Exempt Total: Selected

      When this check box is selected, the Tax Rate column on the Tax Schedule tab becomes equal to 0 and is unavailable. Also, the taxable amount to which the tax applies is included in the VAT Exempt Total for the document on the applicable form.

    • Calculation Rule: Exclusive Line-Level
    • Cash Discount: Does Not Affect Taxable Amount
    • Tax Agency: VATTAX
  2. On the Tax Schedule tab, click Add Row on the table toolbar, and specify the following settings:
    • Start Date: 1/1/1900 (inserted by default)
    • Tax Rate: 0 (inserted by default)

      Because you have selected the Include in VAT Exempt Total check box, the Tax Rate is automatically set to 0.00 and is not available.

    • Reporting Group: Exempt Purchases
  3. Click Add Row again and specify the following settings for the second row:
    • Start Date: 1/1/1900 (inserted by default)
    • Tax Rate: 0 (inserted by default)
    • Reporting Group: Exempt Sales
  4. On the Categories tab, click Add Row on the table toolbar, and select EXEMPT in the Tax Category column.
  5. On the Zones tab, click Add Row on the table toolbar, and select CANADA in the Tax Zone ID column.
  6. On the form toolbar, click Save.

Step 3: Reviewing the List of Taxes and Updating the Tax Categories

To review the list of taxes now available for the CANADA tax zone, do the following:

  1. Open the Tax Zones (TX206000) form.
  2. In the Tax Zone ID box, select CANADA; review the list of taxes that currently belong to this zone. Notice that the list includes both VAT and VATEXEMPT.
  3. Open the Tax Categories (TX205500) form.
  4. In the Tax Category ID box, select TAXABLE, and review the taxes in the table.
  5. In the table, remove NYSTATETAX from the category.
  6. On the form toolbar, click Save.
  7. In the Tax Category ID box, select EXEMPT, and review the taxes in the table.
  8. In the table, remove NYNOTAX from the category.
  9. On the form toolbar, click Save.